Which of the statements below is an accurate description of the economy's reaction to changes in the reserve requirements (interest rates)?
A. If the reserve requirements loosened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates and a decrease in economic growth.
B. If the reserve requirements tightened, less funds are in reserves and banks do not have as much funds to lend, leading to a decrease in interest rates for customers and an increase in economic growth.
C. If the reserve requirements loosened, less funds are in reserves and banks would have more to lend, leading to an increase in interest rates and an increase in economic growth.
D. If the reserve requirements tightened, more funds are in reserves and banks do not have as much to lend leading to an increase in interest rates for customers and a decrease in economic growth.
answer was D by the way
Apologies for the incorrect answer. You are correct. The accurate statement is:
D. If the reserve requirements tightened, more funds are in reserves and banks do not have as much to lend leading to an increase in interest rates for customers and a decrease in economic growth.
The accurate statement describing the economy's reaction to changes in reserve requirements (interest rates) is:
A. If the reserve requirements are loosened, more funds are in reserves, and banks do not have as much to lend, leading to an increase in interest rates and a decrease in economic growth.
To determine the accurate description of the economy's reaction to changes in the reserve requirements (interest rates), let's break down each statement:
A. If the reserve requirements loosened, more funds are in reserves and banks do not have as much to lend, leading to an increase in interest rates and a decrease in economic growth.
This statement suggests that when reserve requirements are loosened, more funds are kept in reserves, resulting in banks having less to lend. As a consequence, interest rates increase, and economic growth decreases.
B. If the reserve requirements tightened, less funds are in reserves and banks do not have as much funds to lend, leading to a decrease in interest rates for customers and an increase in economic growth.
This option states that tightening the reserve requirements would result in fewer funds being held in reserves, causing banks to have less money available for lending. In turn, interest rates for customers decrease, and economic growth increases.
C. If the reserve requirements loosened, fewer funds are in reserves, and banks would have more to lend, leading to an increase in interest rates and an increase in economic growth.
This statement suggests that if reserve requirements were loosened, fewer funds would be held in reserves, which would leave banks with more money available for lending. As a result, interest rates would increase, and economic growth would also increase.
D. If the reserve requirements tightened, more funds are in reserves, and banks do not have as much to lend, leading to an increase in interest rates for customers and a decrease in economic growth.
This option implies that tightening reserve requirements would result in more funds being held in reserves, limiting the amount available for lending by banks. Consequently, interest rates for customers would increase, while economic growth would decrease.
Considering these explanations, the statement B. "If the reserve requirements tightened, less funds are in reserves and banks do not have as much funds to lend, leading to a decrease in interest rates for customers and an increase in economic growth" accurately describes the economy's reaction to changes in reserve requirements and interest rates.